Banks. United Arab Emirates. Full Rating Report. Key Rating Drivers. Rating Sensitivities. Ratings

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1 United Arab Emirates Full Rating Report Ratings Foreign Currency Long-Term IDR A+ Short-Term IDR F1 Viability Rating bb+ Support Rating 1 Support Rating Floor A+ Key Rating Drivers IDRs Driven by Sovereign Support: The IDRs, Support Rating and Support Rating Floor of (ENBD) reflect the extremely high probability of support from the United Arab Emirates (UAE) authorities and the emirate of Dubai, due to the long history of support for the banking system in the UAE, ENBD s substantial domestic franchise and majority ownership by the government of Dubai. Outlook Long-Term Foreign-Currency IDR Stable The UAE authorities provided liquidity support and term funding to all banks in the system in In addition, the government of Dubai injected hybrid Tier 1 capital into ENBD in Financial Data 30 Jun Dec 12 Total assets (USDm) 91, ,947.3 Total assets (AEDm) 334, ,296.4 Total equity (AEDm) 32, ,498.6 Operating profit (AEDm) 1, ,539.1 Published net income 1, ,554.0 (AEDm) Comprehensive income 1, ,898.4 (AEDm) Operating ROAA (%) Operating ROAE (%) Internal capital generation (%) Fitch core capital/ weighted risks (%) Tier 1 ratio (%) Leading Domestic Franchise: ENBD has a leading domestic franchise in the UAE, with a market share of around 18%. It has highly diversified revenue streams and high revenuegenerating capacity, adequate capitalisation, sound liquidity and an extensive customer deposit base. However, its loan book includes significant impaired loans and concentrations. Substantial Dubai Government Exposure: ENBD has substantial exposure to the Dubai government and government-related entities (GREs), as well as Dubai real estate. This has exposed the bank to major corporate restructuring in Dubai. Some corporate restructuring has been completed. Problems remain in Dubai real estate, though there are signs of recovery. Impaired Loans Remain High: The impaired loans/total loans ratio improved slightly to 13.9% at end-h113 (end-2012: 14.3%), while reserve coverage improved to 52.7%. Impaired loans (end-h113: AED34.7bn) include significant exposures to certain Dubai GREs that have been/are being restructured. Other renegotiated loans are also significant and could lead to further asset quality problems. Growth in Net Income: Net income in H113 was up 40.3% yoy to AED1.81bn, benefiting from strong core profitability and lower impairment charges. Net impairment charges, nevertheless, remained high at AED1.88bn (down 8.3% yoy). Strong Customer Deposit Base: Funding predominantly consists of stable customer deposits, although the bank has also been an active issuer in the capital markets. Its Fitch Ratingscalculated gross loans/customer deposits ratio was relatively stable at 109% at end-h113, as deposits have generally kept pace with loan growth. Liquidity is supported by a substantial portfolio of investment securities, central bank certificates of deposit and interbank placements. Improved Capital Ratios: ENBD s Fitch core capital ratio, which does not include hybrid Tier 1 capital, declined to 11.3% at end-h113, while its Tier 1 regulatory capital ratio strengthened to 14.5%, following the issue of USD1bn of hybrid Tier 1 capital. Related Research 2013 Outlook: GCC and Middle East Banks (January 2013) Analysts Philip Smith philip.smith@fitchratings.com Redmond Ramsdale redmond.ramsdale@fitchratings.com Rating Sensitivities Outlook Stable: The bank s Long-Term IDR is on Stable Outlook and this is unlikely to change unless Fitch changes its view of the financial strength of the UAE or the propensity of the UAE and/or Dubai authorities to support ENBD, which is unlikely. Viability Rating Stable: Fitch believes ENBD has sufficient operating revenue to absorb further impairment charges without any adverse impact on its capital base. Nevertheless, the current levels of problem loans, reserve coverage and loan concentration, especially to the Dubai government, remain a concern. Any significant deterioration could lead to a downgrade. 12

2 One of the largest banks in the UAE, with a significant domestic franchise Diversified business streams Majority owned by the government of Dubai Figure 1 Total Operating Revenue by Division (AEDbn) H Corporate Consumer Treasury Islamic Other Total Source: ENBD Profile ENBD is one of the largest banks in the UAE by assets, with a market share of around 18% of loans and deposits. It was formed from the merger of Emirates Bank International and National Bank of Dubai in The merger process was completed in February ENBD is listed on the Dubai Financial Market and its main shareholder is the Investment Corporation of Dubai (ICD; majority owned by the Dubai government), with a 55.6% stake. The bank has the largest branch network in the UAE, with 150 branches at end-2012, of which around two-thirds are in the emirate of Dubai. The bank is active in retail, corporate and Islamic banking, treasury and capital markets. Islamic banking is handled through Emirates Islamic Bank (EIB; 99.8%) and Dubai Bank (100%). Dubai Bank was acquired in late EIB and Dubai Bank operate under common management and common branding. The combined entity represents the third-largest Islamic bank in the UAE, and Islamic net income doubled in 2012 as a result of the acquisition, reduced overheads and funding costs at Dubai Bank, and the introduction of new products and services. Dubai Bank was acquired at fair value. An eight-year AED2.8bn deposit from the UAE Ministry of Finance and a seven-year guarantee from the government of Dubai support the bank s funding and cover future losses on the acquired loan book. ENBD s other main subsidiaries are active in asset management, brokerage, consumer finance, trade finance and back-office services. Its main associates are Network International (card processing, NI; 51%), Union Properties (a leading developer; reduced to 31.4% in H113) and National General Insurance (NGIC; 36.7%). In Q111, the bank sold a 49% stake in NI to Abraaj Capital to support the company s expansion in the region. The sale generated capital and fairvalue gains of AED1.8bn in NI is now jointly controlled. The bank also has branches in London, Jersey, Qatar, Saudi Arabia and Singapore, plus representative offices in Iran, India and China, focusing on trade flows between Asia and the GCC. In late 2012, ENBD signed an agreement with BNP Paribas to acquire BNP Paribas Egypt for USD500m. The bank has 61 branches, a mainly corporate loan book and total assets of around USD2.6bn. The purchase of BNP s 95.2% stake was completed in June 2013, and ENBD expects to acquire the remaining shares by year-end. The purchase price includes estimated goodwill of around USD161m. The acquisition should generate good opportunities to handle cross-border trade flows. Corporate Governance The board of directors has nine members elected for three years. While some members hold positions in government bodies, all are considered by ENBD to be independent of the government of Dubai and represent the shareholders of the bank as a whole. There is no requirement for totally independent members but, according to the bank, no member has any actual or potential conflict of interest. The board is supported by board committees for audit, credit and investment, risk, and nominations/remuneration, apart from various executive committees. Strategy ENBD adopted a more cautious strategic approach following the global economic crisis. Challenging economic conditions led the bank to virtually stop loan growth, reduce riskweighted assets and concentrate on domestic issues, including restructuring and workouts of major corporate problem loans in Dubai. Related Criteria Global Financial Institutions Rating Criteria (August 2012) Evaluating Corporate Governance (December 2012) Assessing and Rating Bank Subordinated and Hybrid Securities (December 2012) Its main strategic objectives now include: to drive the core businesses; focus on customer service, enhancing support functions and strengthening platforms; drive profitability through increased cost efficiency, revenue growth and enhanced sales focus; and achieve selective geographic expansion outside the UAE. Specific areas of focus will be retail (focusing on a multi-channel approach, cross-selling of a broad range of products, supported by a direct sales 2

3 force). Private banking, asset management and brokerage have been combined under a wealth management platform. Wholesale banking has also undergone a transformation process, to improve cross-selling through closer cooperation with other divisions, increased segmentation and relationship management, and expansion of its SME coverage and international profile. In the longer term, ENBD aims to be the most successful bank in the region. Strong revenue-generating capacity Reasonable cost/income ratio Growth in profitability expected in 2013 Renegotiated loans may be a source of future impairment Figure 2 ENBD Operating Income (AEDm) H113 H112 Interest revenue 4,537 4,613 Interest expense -1,357-1,447 Net Islamic revenue Net interest and 3,705 3,464 Islamic revenues Fee income 1, Trading income FX income Realised investment gains/losses (secs) Gains/losses on 98-6 investment properties Other income (net) Total operating income 5,550 5,185 Source: ENBD financial statements Presentation of Accounts Fitch s analysis is based on consolidated financial statements prepared under IFRS and the requirements of the Central Bank of the UAE (CBUAE). KPMG audited the 2012 financial statements, which were unqualified. Interim figures were reviewed but not audited. Performance The UAE banking system has been characterised in recent years by higher impairment charges, slower or negative loan growth, tightening liquidity and lower profitability. Real estate markets have shown some signs of recovery, and restructuring of problem loans is progressing. Fitch expects some growth in profitability in 2013, mainly due to lower impairment charges, while margin compression will continue, reflecting low interest rates. However, the banks remain well capitalised and fundamentally profitable, which should mean that any further problems can be absorbed. H113 Results ENBD reported net income of AED1.81bn in H113, up 40.3% yoy, supported by higher operating revenues, notably net interest income including dividends (up 7.0% yoy) and net fee income (up 21.6% yoy). The net interest margin was broadly in line with 2012 at 2.8% following some pressure in Q113 due to lower loan and treasury spreads, partly off-set by higher deposit spreads. Non-interest expenses were slightly higher (up 2.5% yoy). Net impairment charges were significantly lower at AED1.88bn (down 8.3% yoy) and essentially reflected specific loan impairment charges relating to corporate and Islamic financing. The bank booked AED66.6m relating to its share of profits in associates Results Net income in 2012 increased by 2.8% to AED2.55bn, but nearly trebled excluding the AED1.8bn non-recurring gain in There was a fall in net interest income (down 4.4%) and some compression on the net interest margin, reflecting the continued low interest rate environment, which affected yields on investment securities, while competition further reduced spreads on corporate loans. ENBD also suffered from a lack of new corporate business, while incurring the cost of carrying non-performing loans. While the bank raised wholesale funding at attractive rates, the increase in wholesale funding affected the overall cost of funds. Net fee income (mainly from banking services and trade finance) was flat, but the bank benefited from increased foreign exchange income and gains on investment securities, and lower write-downs on investment properties. Expenses rose 4.6%, in part reflecting the acquisition of Dubai Bank, although rationalisation of overheads at the combined Islamic banks should benefit the cost structure in the future. There was a slight increase in the bank s cost/income ratio to a still reasonable 36.7%. Net impairment charges declined by 19.6% to AED4.0bn (2011: AED4.97bn), contributing to the 75.8% increase in operating profit to AED2.54bn. Net impairment charges related almost entirely to specific loan impairment charges, mainly in the corporate and Islamic banking books, while there was a small reversal of collective impairment charges. In 2011, ENBD benefited from non-recurrent capital gains plus fair-value revaluations totalling AED1.8bn arising from the sale of a 49% stake in its card-processing subsidiary, NI, and revaluation of the retained 51% stake. The bank also reduced the book value of its investment in its associate, UP, by AED500m, reflecting both its share in losses and impairment, considering the bank s expectations of future cash flows. Overall losses on associates 3

4 amounted to AED654m. In 2012, no further impairment of investments in associates was required and ENBD booked AED110.1m relating to its share of profits. Figure 3 UAE Banks Peer Group Comparison ENBD NBAD ADCB H Total assets (AEDm) 334, , , , , , ,726 Total equity (AEDm) 32,507 32,499 30,981 27,112 22,362 20,708 18,078 Pre-imp op profit (AEDm) 3,668 6,543 6,414 5,801 5,317 4,526 4,165 Operating profit (AEDm) 1,783 2,539 1,445 4,464 3,819 2,816 1,767 Loan growth (%) Operating ROAA (%) Operating ROAE (%) Net interest margin (%) Cost/income ratio (%) NBAD: National Bank of Abu Dhabi (rated AA, F1+, a, 1) ADCB: Abu Dhabi Commercial Bank (rated A+, F1, bb+, 1) Source: Bank financial statements and Fitch analysis Prospects ENBD continues to face a number of challenges: further significant impairment charges, continuing difficulties in the real estate market (although there are some signs of recovery in selected areas), and the risk of further impairment arising in its renegotiated/restructured loans. These factors are likely to result in modest balance sheet and profitability growth. Management expects mid-single-digit growth in loans, a possible slight reduction in the net interest margin in 2013 and a further increase in non-performing loans to between 14% and 15% of total loans by end-2013, while loan loss reserve coverage should improve to around 55%/80% (including/excluding the major Dubai GREs subject to restructuring). However, although the bank s large franchise means it has significant exposure to the problem areas of the Dubai economy, it also means that ENBD has had some success in attracting customer deposits in a competitive market and has a high level of sustainable core revenue. Together with an improved capital base, these factors mean that the bank is relatively well positioned to benefit from future growth in the UAE and the wider region. Dubai is already showing some signs of recovery and the outlook is more positive. Asset quality ratios improved slightly in H113, with some increase in loan loss reserve coverage Significant real estate and GRE exposures Further increase in exposure to the Dubai government Risk Management Overall responsibility for risk management is held by the board of directors, which delegates implementation through the board risk committee and the board credit and investment committee (BCIC) to the executive committee (EXCO) and the group asset and liability committee (ALCO). The independent risk department (responsible for credit, market and operational risk) is headed by the general manager for risk, who sits on the EXCO and reports to the bank s CEO. The main risk faced by the bank is credit risk, although market risks are also fairly substantial within the investment portfolio. ENBD follows the standardised approaches for Pillar I credit risk, market risk and operational risk under Basel II. Credit risk accounts for almost all the bank s capital requirement at around 93%, operational risk for 6% and market risk for just 1%. ENBD prepares group-wide internal capital adequacy assessments in accordance with Pillar 2, and it has reviewed its economic capital in preparation for Basel III. It has enhanced its systems to qualify for the internal ratings-based (IRB) approach to credit risk and advanced measurement for operational risk. The IRB is already used by management for internal purposes. The bank has also adopted an integrated stress-testing framework as part of its risk strategy. Credit Risk All of ENBD s credit decisions are subject to a delegated authority matrix, with the ultimate authority resting with the board. The risk control unit within risk management conducts regular 4

5 Figure 4 Conventional Loan Portfolio (Gross) (%) H Manufacturing Construction Trade Transport/ communication Services Sovereign Personal retail and corporate Real estate Financial institutions Others Total Amount (AEDbn) Source: ENBD reports Figure 5 Islamic Financing Portfolio (Gross a ) (%) H Manufacturing Construction Trade Transport/ communication Services Sovereign Personal retail and corporate Real estate Financial institutions Others Total Amount (AEDbn) a Includes deferred income Source: ENBD reports reviews of the entire portfolio as well as more frequent reviews of the impaired portfolio. The bank sets exposure ceilings as imposed by the CBUAE and country and sector limits as imposed by the board and executive committees. Credit risk is measured in the corporate book using the five-grade risk rating system as required by the CBUAE, but the bank has also adopted a far more granular internal rating system with effectively 24 grades for performing facilities and four for non-performing. Consumer loans are mapped onto the master scale using probability of default. Gross loans and Islamic financing increased by 8.7% in 2012 to AED234.8bn (and by a further 6.5% in H113). Growth came largely from sovereign exposures, which increased to 38.3% of gross conventional loans. At end-h113, Islamic financing accounted for around 14% of total loans and financing, and was dominated by personal loans retail and real estate lending. Personal loans retail are mainly loans, mortgages, car finance and, to a lesser extent, credit cards. Loans are supported by salary assignment, and car loans and mortgages by a claim on the asset; credit cards are unsecured. There is currently no UAE-wide credit bureau to assist retail risk management, although this is expected to start operations later this year. Personal loans corporate are mainly loans to high-net-worth individuals for business or investment purposes. These are secured in a similar way to corporate loans and may also be supported by personal guarantees. Real estate exposures mainly relate to development financing and commercial real estate lending. Loan/value ratios are typically a maximum of 60% of the valuation or 70% of the construction cost (excluding the land). Borrowers are expected to have multiple revenue sources. Further real estate exposures are through investment properties and ENBD s stake in its associate, UP. Valuations are conducted by independent valuers and ENBD s real estate division. The construction sector relates to contracting; eg, infrastructure projects. Sovereign exposures include exposures to the Dubai government, the governments of the other emirates, municipalities, courts and government departments (eg, the road and transport authority). Concentrations within the corporate portfolio are a factor throughout the region, where economies are dominated by the government, GREs and a small number of large, diversified trading groups. Around 96% of corporate lending is within the UAE. The bank seeks collateral as an additional means of repayment on its corporate loan portfolio, in the form of cash, bank guarantees, real estate, shares, assignment of receivables, other tangible assets, and personal and corporate guarantees. ENBD s 20 largest grouped funded and non-funded exposures represent a very high proportion of its total exposures. Related-party transactions (all done on an arm s-length basis at commercial terms) are also highly significant, with loans to the Dubai government (not including GREs) totalling AED82.7bn at end-h113 (end-2012: AED75.7bn), or around 33% of gross loans, equivalent to 3.2x Fitch core capital. According to management, the increase mainly related to government projects. Loans to the main shareholder, ICD, were unchanged at AED2.2bn. Loans to directors and their companies totalled AED1.2bn and the bank s associate companies a further AED1.1bn. Dubai GREs accounted for a further 16% of loans at end-h113. Off-balance-sheet contingencies and commitments increased in H113 to AED66.7bn (end- 2012: AED52.2bn), equivalent to 19.9% of total assets. Guarantees were the main item at AED39.3bn, and letters of credit AED8.7bn, while irrevocable loan commitments stood at AED15.6bn, implying potential future growth in the loan portfolio. Impaired Loans and Impairment Reserves Both corporate and retail loans are classified as impaired at 90 days overdue, with specific impairment charges calculated using a discounted cash flow methodology under IAS39. Collective impairment charges are taken against the portfolio to reflect impairments that have not yet been identified. Retail loans are not written off unless a compromise settlement has 5

6 been agreed, while corporate loans are only written off once all prospects of recovery have been exhausted, which means that the bank (like many others in the region) holds some old fully reserved loans on its books. Corporate loans, if not considered recoverable by the business unit, are transferred to the Specialised Loans Group. Asset quality ratios deteriorated further in 2012, reflecting various large exposures, but the overall non-performing loan ratio of 14.3% remained below ENBD s previous guidance of 15%- 16% by end In H113, the NPL ratio improved to 13.9%, while the bank revised its guidance to 14%-15% by end Overall coverage increased to 52.7%. Figure 6 Asset Quality (AEDm) H Total gross 250, ,757 loans (TGL) Loan loss reserves (LLR) 18,270 16,595 Total net loans 231, ,162 Impaired loans (IL) 34,687 33,609 (%) IL/TGL LLR/TGL LLR/IL The table includes investments classified as loans and advances Source: Bank reports Certain Dubai GREs dominate ENBD s NPLs. Although negotiations to restructure certain obligations of Dubai World over a longer term have been completed and the obligations are now performing in accordance with their revised terms, the bank continues to include these in its NPL ratio (unlike many other UAE banks). There was no haircut on principal, and the modest reserve (6%) merely reflects the impact of the rescheduling on the interest payments. Repayments are due in 2015 and Negotiations with certain entities in the Dubai Holding group are ongoing, but ENBD expects to conclude these shortly. Reserves held in this case have increased to around 55% at end-h113. Excluding the exposures to Dubai World and the Dubai Holding group, the NPL ratio would have been 8.2% and the overall coverage would have been 74.1% at end-h113 (end-2012: 8.2% and 69.8%, respectively). The bank still has a significant balance of renegotiated loans, which could deteriorate in future. Renegotiated loans have been extended to suit the borrowers cash flows but with no reduction in principal or interest, and sometimes with additional collateral. These loans are classified as standard but monitored as renegotiated loans. Past-due loans greater than 30 days but not impaired declined to AED5.5bn at end-h113. These loans are typically cases where there have been payment delays, but the borrower has a good track record and/or outstandings are well covered by collateral or receivables. It is likely that the absolute amount of impaired loans will continue to rise in H213, although, according to the bank, all problem loans have been identified. ENBD has substantially increased its collective reserve coverage to a level significantly above CBUAE requirements (AED3.7bn, or 2.8% of performing credit RWA, against a CBUAE requirement of 1.5%). Its significant operating revenue (and reasonable level of capitalisation) will allow it to absorb the impact of any further impaired loans. Other Earning Assets Bank placements of AED24.2bn at end-h113 were with highly rated regional and international banks. In addition, ENBD had AED29.6bn placed with the CBUAE, of which around half related to statutory deposits and the balance to interest-bearing deposits and certificates of deposit. ENBD s other earning assets at end-h113 included investment securities of AED17.6bn, trading securities of AED0.9bn and investments in associates and joint ventures of AED1.9bn. The total equated to about 6.1% of total assets and 78% of Fitch core capital at end-h113. The bond portfolio (trading and investment portfolios) of AED15.2bn was split roughly 45%/55% between government and corporate debt exposures. Government bonds are almost entirely regional and international, with very little exposure to the Dubai government (end-h113: AED0.1bn). Some 42% of the total portfolio was unrated (at end-2012), reflecting the presence of domestic corporate debt, much of which relates to GREs (otherwise, ratings are split: 23% AAA and AA; 16% A; and 19% BBB or lower). The portfolio is mainly senior debt, with minimal exposures to structured credit. The equities portfolio totalled AED1.4bn at end-h113, the majority of which was held as available for sale. Around AED1.8bn of the total investment portfolio is invested in various funds, of which around 45% relates to various real estate funds. 6

7 Investment properties totalled AED1.15bn at end-h113 and are mainly held within EIB. The portfolio consists of freehold properties, mainly buildings but also land, largely in Dubai. This exposure does not fall within the CBUAE s statutory real estate exposure ratio. Investments in associates and joint ventures of AED1.9bn mainly relate to ENBD s stakes in NI, UP and NGIC. In the past, the bank has suffered substantial losses and impairments on its investment in associates, primarily UP. In contrast, the sale of a 49% stake in NI in Q111 generated a gain of AED957m and a fair-value gain on revaluation of the retained 51% stake of AED856m. There were no impairments of investments in associates in 2012 or H113. Market and Operational Risk The market risk function reports to the group chief risk officer and operates to limits set by the BCIC and delegated through the group ALCO to global markets and treasury operations. ENBD has significant valuation risk in its investment portfolio, which can be volatile. Trading is relatively small scale and mainly relates to foreign exchange and interest-rate derivatives. The bank closely monitors stop-loss limits, open positions, value at risk (VaR) and the present value of a one-basis-point shift (PV01). ENBD s net open position was well within its limits at end and mainly related to the US dollar and Saudi riyal. The historical stability of the UAE dirham-us dollar and Saudi riyal-us dollar pegs reduces risk. End-2012 trading book VaR was calculated using a 99% confidence level, a one-day holding period and two years historical data, and was insignificant at AED3.3m, with the average for the year at AED6.1m, well within limits. Interest rate risk in the banking book is fairly limited, as most assets and liabilities (around 75%) are floating rate and reprice fairly quickly. ENBD primarily uses gap analysis, but also uses simulations and stress tests to assess the impact of 2% shocks to the yield curve, which would have meant an increase/decrease in net interest income of AED910m/AED434m, or 1.5%/3.5% of Fitch core capital at end ENBD has a group-wide operational risk policy, which is approved by the board risk committee and regulated through the group operational risk and compliance committee. The bank is following the standardised approach under Basel II. It has an established control risk selfassessment process, an internal loss data collection process, a group business continuity management policy and a comprehensive insurance programme. Funding mainly domestic deposits, but also increasing use of the debt capital markets Loans/deposits ratio stable Strengthened capital position Funding, Liquidity and Capital Funding ENBD is predominantly funded via customer deposits, although it has also been a regular user of wholesale and capital markets funding. Customer deposits including Islamic deposits increased by 10.7% in 2012 to AED213.9bn. Deposits increased by a further 7.7% in H113, and current and savings account deposits represented around 50% of the total. Time deposits are typically short-term but tend to roll over. Deposits included AED12.6bn placed by the UAE Ministry of Finance in December 2008 as part of the system-wide support measures and classified as Tier 2. However, the capital effectiveness of this deposit has been reducing since early 2012 and, in H113, the bank repaid AED7.8bn. The deposit base appears to be slightly less concentrated than others in the UAE, but the 20 largest conventional deposits still represented a significant proportion of total deposits. These were mainly placed by Dubai GREs and major UAE corporates. Deposits by related parties (mainly ICD and the government) amounted to AED7.75bn (3.4% of total customer deposits) at end-h113, while GREs accounted for a further 11%. Around 94% of deposits are from the GCC. Interbank borrowing, essentially from UAE banks, remained significant at AED29.9bn including repos at end-h113, but, taking into account the substantial balances at the CBUAE, ENBD is a net placer of funds. Medium-term borrowings have also increased. At end-h113, following scheduled repayments and new issuance, AED21.4bn was outstanding, including subordinated debt totalling AED2.8bn and sukuk totalling AED3.7bn. Maturities are generally well spread, 7

8 with AED2.3bn due in H213, AED2.6bn in 2014, AED1.3bn in 2015, AED1.6bn in 2016 and AED5.9bn in 2017, with the balance up to In March 2013, the bank issued USD750m of subordinated debt due in ENBD retains the capacity to issue further debt under its EMTN programme. To date, the bank has met repayments from internal resources and should be able to continue to do so. Liquidity ENBD s Fitch-calculated gross loans/customer deposits ratio has remained at around 110%, within the bank s target range, while deposit growth has slightly exceeded loan growth. The net loans/assets ratio has remained at around 70%. ENBD s principal liquid assets are cash and placements with the CBUAE (H113: AED15.3bn not including minimum reserves) and in the interbank market (AED24.2bn), and its securities portfolio described above. Liquidity is monitored centrally by the ALCO, and the bank aims to obtain funding from diversified sources, while avoiding maturity concentrations, and maintaining strong liquidity buffers. Capital ENBD appears reasonably capitalised, with Basel II-compliant Tier 1 and total capital adequacy ratios of 13.8% and 20.6%, respectively, at end At end-h113, the Tier 1 regulatory capital ratio had increased to 14.5%, while the total capital ratio had declined to 18.5%. These changes reflected a number of factors: the issue of USD1bn of hybrid Tier 1 capital and USD750m of subordinated debt (which partly offset the repayment of the Ministry of Finance deposit), the dividend payout in Q113, and the increase in risk-weighted assets (mainly due to the consolidation of BNP Paribas Egypt). The CBUAE has ruled that all banks must have a total capital ratio above 12% and the Tier 1 element must be a minimum of 8%, levels comfortably achieved by ENBD. In May 2013, ENBD issued USD1bn of perpetual hybrid Tier 1 securities, to which Fitch has assigned 50% equity credit. In June 2009, the bank had placed AED4bn of perpetual hybrid Tier 1 securities with the Dubai government (assigned 100% equity credit). In both cases, ENBD has the right not to pay the coupon on these notes at its own discretion. Noteholders have no claim on these unpaid coupons and non-payment is not considered an event of default. If coupons are unpaid, dividends can only be paid to common shareholders once two consecutive coupon payments have been made in full. ENBD s Fitch core capital ratio, which excludes the above issues of hybrid capital, declined to 11.3% at end-h113 (end-2012: 12.3%). Capital ratios should remain broadly at current levels in the absence of significant loan growth and would be sufficient to absorb higher impairments in the unlikely event that these are not absorbed by pre-impairment operating profits. In Q113, the bank paid an increased dividend of AED1.4bn, equivalent to 54.3% of 2012 net income. 8

9 Income Statement 30 Jun Dec Dec Dec Months - Interim 6 Months - Interim As % of Year End As % of Year End As % of Year End As % of USDm AEDm AEDm AEDm AEDm Unaudited Unaudited Earning Assets Unqualified Earning Assets Unqualified Earning Assets Unqualified Earning Assets 1. Interest Income on Loans 1, , , , , Other Interest Income , Dividend Income Gross Interest and Dividend Income 1, , , , , Interest Expense on Customer Deposits , , , , Other Interest Expense , , Total Interest Expense , , , , Net Interest Income 1, , , , , Net Gains (Losses) on Trading and Derivatives (3.6) (13.2) (0.01) (139.6) (0.06) Net Gains (Losses) on Other Securities Net Gains (Losses) on Assets at FV through Income Statement (4.9) (0.00) (48.6) (0.02) 12. Net Insurance Income n.a. n.a. - n.a. - n.a. - n.a Net Fees and Commissions , , , , Other Operating Income , Total Non-Interest Operating Income , , , , Personnel Expenses , , , , Other Operating Expenses , , , Total Non-Interest Expenses , , , , Equity-accounted Profit/ Loss - Operating n.a. n.a. - n.a. - n.a. - n.a Pre-Impairment Operating Profit , , , , Loan Impairment Charge , , , , Securities and Other Credit Impairment Charges Operating Profit , , , , Equity-accounted Profit/ Loss - Non-operating (654.0) (0.27) (664.3) (0.26) 25. Non-recurring Income n.a. n.a. - n.a. - 1, n.a Non-recurring Expense n.a. n.a. - n.a. - n.a. - n.a Change in Fair Value of Own Debt n.a. n.a. - n.a. - n.a. - n.a Other Non-operating Income and Expenses (8.6) (31.5) (0.02) (80.0) (0.03) (93.9) (0.04) (93.9) (0.04) 29. Pre-tax Profit , , , , Tax expense Profit/Loss from Discontinued Operations n.a. n.a. - n.a. - n.a. - n.a Net Income , , , , Change in Value of AFS Investments (86.6) (318.2) (0.23) Revaluation of Fixed Assets n.a. n.a. - n.a. - n.a. - n.a Currency Translation Differences (1.4) (5.2) (0.00) (1.1) (0.00) (3.7) (0.00) n.a Remaining OCI Gains/(losses) (8.3) (30.3) (0.02) Fitch Comprehensive Income , , , , Memo: Profit Allocation to Non-controlling Interests (47.5) (0.02) (0.3) (0.00) 39. Memo: Net Income after Allocation to Non-controlling Interests , , , , Memo: Common Dividends Relating to the Period , , , Memo: Preferred Dividends Related to the Period n.a. n.a. - n.a. - n.a. - n.a. - Exchange rate USD1 = AED USD1 = AED USD1 = AED USD1 = AED

10 Balance Sheet 30 Jun Dec Dec Dec Months - Interim 6 Months - Interim As % of Year End As % of Year End As % of Year End As % of USDm AEDm Assets AEDm Assets AEDm Assets AEDm Assets Assets A. Loans 1. Residential Mortgage Loans n.a. n.a. - n.a. - n.a. - n.a Other Mortgage Loans n.a. n.a. - n.a. - n.a. - n.a Other Consumer/ Retail Loans n.a. n.a. - n.a. - n.a. - n.a Corporate & Commercial Loans n.a. n.a. - n.a. - n.a. - n.a Other Loans 68, , , , , Less: Reserves for Impaired Loans/ NPLs 4, , , , , Net Loans 63, , , , , Gross Loans 68, , , , , Memo: Impaired Loans included above 9, , , , , Memo: Loans at Fair Value included above n.a. n.a. - n.a. - n.a. - n.a. - B. Other Earning Assets 1. Loans and Advances to Banks 6, , , , , Reverse Repos and Cash Collateral n.a. n.a. - n.a. - n.a. - n.a Trading Securities and at FV through Income , , , , Derivatives , , , , Available for Sale Securities 4, , , , , Held to Maturity Securities At-equity Investments in Associates , , , , Other Securities n.a. n.a. - n.a. - n.a. - n.a Total Securities 6, , , , , Memo: Government Securities included Above 1, , , , , Memo: Total Securities Pledged n.a. n.a. - n.a. - n.a. - n.a Investments in Property , , , , Insurance Assets n.a. n.a. - n.a. - n.a. - n.a Other Earning Assets n.a. n.a. - n.a. - n.a Total Earning Assets 76, , , , , C. Non-Earning Assets 1. Cash and Due From Banks 8, , , , , Memo: Mandatory Reserves included above 4, , , , , Foreclosed Real Estate n.a. n.a. - n.a. - n.a. - n.a Fixed Assets , , , , Goodwill 1, , , , , Other Intangibles Current Tax Assets n.a. n.a. - n.a. - n.a. - n.a Deferred Tax Assets n.a. n.a. - n.a. - n.a. - n.a Discontinued Operations n.a. n.a. - n.a. - n.a. - n.a Other Assets 3, , , , , Total Assets 91, , , , , Liabilities and Equity D. Interest-Bearing Liabilities 1. Customer Deposits - Current 62, , , , , Customer Deposits - Savings n.a. n.a. - 17, , , Customer Deposits - Term n.a. n.a , , , Total Customer Deposits 62, , , , , Deposits from Banks 8, , , , , Repos and Cash Collateral , Other Deposits and Short-term Borrowings n.a. n.a. - n.a. - n.a. - n.a Total Deposits, Money Market and Short-term Funding 70, , , , , Senior Debt Maturing after 1 Year 5, , , , , Subordinated Borrowing n.a. n.a. - 1, , , Other Funding n.a. n.a. - n.a. - n.a. - n.a Total Long Term Funding 5, , , , , Derivatives , , , , Trading Liabilities n.a. n.a. - n.a. - n.a. - n.a Total Funding 77, , , , , E. Non-Interest Bearing Liabilities 1. Fair Value Portion of Debt n.a. n.a. - n.a. - n.a. - n.a Credit impairment reserves n.a. n.a. - n.a. - n.a. - n.a Reserves for Pensions and Other n.a. n.a. - n.a. - n.a. - n.a Current Tax Liabilities n.a Deferred Tax Liabilities n.a. n.a. - n.a. - n.a. - n.a Other Deferred Liabilities n.a. n.a. - n.a. - n.a. - n.a Discontinued Operations n.a. n.a. - n.a. - n.a. - n.a Insurance Liabilities n.a. n.a. - n.a. - n.a. - n.a Other Liabilities 3, , , , , Total Liabilities 80, , , , , F. Hybrid Capital 1. Pref. Shares and Hybrid Capital accounted for as Debt Pref. Shares and Hybrid Capital accounted for as Equity 2, , , , , G. Equity 1. Common Equity 8, , , , , Non-controlling Interest Securities Revaluation Reserves Foreign Exchange Revaluation Reserves (2.7) (10.0) (0.00) (4.8) (0.00) (3.7) (0.00) Fixed Asset Revaluations and Other Accumulated OCI n.a. n.a. - n.a. - n.a. - n.a Total Equity 8, , , , , Total Liabilities and Equity 91, , , , , Memo: Fitch Core Capital 7, , , , , Memo: Fitch Eligible Capital 8, , , , , Exchange rate USD1 = AED USD1 = AED USD1 = AED USD1 = AED

11 Summary Analytics 30 Jun Dec Dec Dec Months - Interim Year End Year End Year End A. Interest Ratios 1. Interest Income on Loans/ Average Gross Loans Interest Expense on Customer Deposits/ Average Customer Deposits Interest Income/ Average Earning Assets Interest Expense/ Average Interest-bearing Liabilities Net Interest Income/ Average Earning Assets Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets B. Other Operating Profitability Ratios 1. Non-Interest Income/ Gross Revenues Non-Interest Expense/ Gross Revenues Non-Interest Expense/ Average Assets Pre-impairment Op. Profit/ Average Equity Pre-impairment Op. Profit/ Average Total Assets Loans and securities impairment charges/ Pre-impairment Op. Profit Operating Profit/ Average Equity Operating Profit/ Average Total Assets Taxes/ Pre-tax Profit Pre-Impairment Operating Profit / Risk Weighted Assets Operating Profit / Risk Weighted Assets C. Other Profitability Ratios 1. Net Income/ Average Total Equity Net Income/ Average Total Assets Fitch Comprehensive Income/ Average Total Equity Fitch Comprehensive Income/ Average Total Assets Net Income/ Av. Total Assets plus Av. Managed Securitized Assets n.a. n.a. n.a. n.a. 6. Net Income/ Risk Weighted Assets Fitch Comprehensive Income/ Risk Weighted Assets D. Capitalization 1. Fitch Core Capital/Weighted Risks Fitch Eligible Capital/ Weighted Risks Tangible Common Equity/ Tangible Assets Tier 1 Regulatory Capital Ratio Total Regulatory Capital Ratio Core Tier 1 Regulatory Capital Ratio n.a. n.a. n.a. n.a. 7. Equity/ Total Assets Cash Dividends Paid & Declared/ Net Income Cash Dividend Paid & Declared/ Fitch Comprehensive Income Cash Dividends & Share Repurchase/Net Income n.a. n.a. n.a. n.a. 11. Net Income - Cash Dividends/ Total Equity E. Loan Quality 1. Growth of Total Assets (0.56) Growth of Gross Loans (6.87) 3. Impaired Loans(NPLs)/ Gross Loans Reserves for Impaired Loans/ Gross loans Reserves for Impaired Loans/ Impaired Loans Impaired Loans less Reserves for Imp Loans/ Equity Loan Impairment Charges/ Average Gross Loans Net Charge-offs/ Average Gross Loans 0.02 (0.45) (0.14) Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Assets F. Funding 1. Loans/ Customer Deposits Interbank Assets/ Interbank Liabilities Customer Deposits/ Total Funding excl Derivatives

12 Reference Data 30 Jun Dec Dec Dec Months - Interim 6 Months - Interim As % of Year End As % of Year End As % of Year End As % of USDm AEDm Assets AEDm Assets AEDm Assets AEDm Assets A. Off-Balance Sheet Items 1. Managed Securitized Assets Reported Off-Balance Sheet n.a. n.a. - n.a. - n.a. - n.a Other off-balance sheet exposure to securitizations n.a. n.a. - n.a. - n.a. - n.a Guarantees 10, , , , , Acceptances and documentary credits reported off-balance sheet 2, , , , , Committed Credit Lines 4, , , , , Other Contingent Liabilities , , , , Total Business Volume 109, , , , , Memo: Total Weighted Risks 62, , , , , Fitch Adjustments to Weighted Risks. n.a. n.a. - n.a. - n.a. - n.a Fitch Adjusted Weighted Risks 62, , , , , B. Average Balance Sheet Average Loans 65, , , , , Average Earning Assets 72, , , , , Average Assets 87, , , , , Average Managed Securitized Assets (OBS) n.a. n.a. - n.a. - n.a. - n.a. - Average Interest-Bearing Liabilities 73, , , , , Average Common equity 8, , , , , Average Equity 8, , , , , Average Customer Deposits 60, , , , , C. Maturities Asset Maturities: Loans & Advances < 3 months n.a. n.a , , n.a. - Loans & Advances 3-12 Months n.a. n.a. - 11, , n.a. - Loans and Advances 1-5 Years n.a. n.a. - 59, , n.a. - Loans & Advances > 5 years n.a. n.a. - 40, , n.a. - Debt Securities < 3 Months n.a. n.a. - n.a. - n.a. - n.a. - Debt Securities 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Debt Securities 1-5 Years n.a. n.a. - n.a. - n.a. - n.a. - Debt Securities > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Interbank < 3 Months n.a. n.a. - 13, , n.a. - Interbank 3-12 Months n.a. n.a. - 1, , n.a. - Interbank 1-5 Years n.a. n.a. - 2, , n.a. - Interbank > 5 Years n.a. n.a n.a. - n.a. - Liability Maturities: Retail Deposits < 3 months n.a. n.a. - n.a. - n.a. - n.a. - Retail Deposits 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Retail Deposits 1-5 Years n.a. n.a. - n.a. - n.a. - n.a. - Retail Deposits > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits < 3 Months n.a. n.a , , n.a. - Other Deposits 3-12 Months n.a. n.a. - 39, , n.a. - Other Deposits 1-5 Years n.a. n.a. - 21, , n.a. - Other Deposits > 5 Years n.a. n.a. - 3, n.a. - n.a. - Interbank < 3 Months n.a. n.a. - 18, , n.a. - Interbank 3-12 Months n.a. n.a. - 3, , n.a. - Interbank 1-5 Years n.a. n.a. - n.a. - n.a. - n.a. - Interbank > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Senior Debt Maturing < 3 months n.a. n.a. - 2, n.a. - n.a. - Senior Debt Maturing 3-12 Months n.a. n.a. - 1, n.a. - n.a. - Senior Debt Maturing 1-5 Years n.a. n.a. - 8, n.a. - n.a. - Senior Debt Maturing > 5 Years n.a. n.a. - 1, n.a. - n.a. - Total Senior Debt on Balance Sheet n.a. n.a. - 13, n.a. - n.a. - Fair Value Portion of Senior Debt n.a. n.a. - n.a. - n.a. - n.a. - Covered Bonds n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing < 3 months n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing 1-5 Year n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Total Subordinated Debt on Balance Sheet n.a. n.a. - 1, , , Fair Value Portion of Subordinated Debt n.a. n.a. - n.a. - n.a. - n.a. - D. Equity Reconciliation 1. Equity 8, , , , , Add: Pref. Shares and Hybrid Capital accounted for as Equity 2, , , , , Add: Other Adjustments n.a. n.a. - n.a. - n.a. - n.a Published Equity 10, , , , , E. Fitch Eligible Capital Reconciliation 1. Total Equity as reported (including non-controlling interests) 8, , , , , Fair value effect incl in own debt/borrowings at fv on the B/S- CC only Non-loss-absorbing non-controlling interests Goodwill 1, , , , , Other intangibles Deferred tax assets deduction Net asset value of insurance subsidiaries First loss tranches of off-balance sheet securitizations Fitch Core Capital 7, , , , , Eligible weighted Hybrid capital , Government held Hybrid Capital 1, , , , , Fitch Eligible Capital 8, , , , , Exchange Rate USD1 = AED USD1 = AED USD1 = AED USD1 = AED